Question
Share capital Preferred shares, $4 dividend, cumulative and fully participating (20,000 authorized; 2,000 issued and outstanding) $100,000 Common shares (100,000 authorized, 50,000 issued and outstanding)
Share capital
Preferred shares, $4 dividend, cumulative and fully participating
(20,000 authorized; 2,000 issued and outstanding) $100,000
Common shares
(100,000 authorized, 50,000 issued and outstanding) $450,000
Contributed capital, preferred share retirement $15,000
Contributed capital, conversion option $1,000
$566,000
Retained earnings (Note 1) $434,000
Shareholders equity $1,000,000
Note 1: On December 31, Year 9, dividends on preferred shares were one year in arrears.
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Several transactions affecting shareholders equity took place since January 1, Year 10, and are summarized in chronological order as follows.
1. On March 1, Year 10, the company issued 10,000 common shares as a result of the conversion of convertible bonds at the option of bondholders. On the transaction date, the carrying value of the bonds was $97,000 and the carrying value of the conversion option was $1,000. HFOs shares were actively trading at $10 per share.
2. On June 1, Year 10, the company exchanged 10,000 common shares for a special equipment. The equipment was valued at $120,000 by an independent appraiser. On the transaction date, HFOs shares were actively trading at $12 per share.
3. On September 1, Year 10, the company purchased and retired 14,000 common shares at $14 per share.
4. On December 1, Year 10, the company declared dividends to be paid on February 1, Year 11.
5. On February 1, Year 11, the dividends were paid to the shareholders of common and preferred shares. The shareholders of preferred shares received Box1: 12 per share.
6. On February 15, Year 11, the company announces net income of $200,000 for the year ended December 31, Year 10.
(1) Determine total dividends declared on December 1, Year 10. [16 marks]
(2) Determine the retained earnings amount to be reported for the statement of financial position at December 31, Year 10. [10 marks]
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